When you get down to the brass tacks, the difference between the forex market and the cryptocurrency market comes down to the old and the new. For many people, it’s still mentally taxing to think about a currency that’s backed by coding as opposed to one that’s backed by an actual country. After all, fiat money (traditional money) is government-issued and something you can touch and spend, whereby cryptocurrency is completely digital and deregulated. The public’s hesitation towards cryptocurrency is completely understandable and it stems mainly from a lack of understanding. Either way, you look at it, cryptocurrency is here to stay. However, if you’ve been wondering about the differences between forex and crypto, then by all means, read on.
Crypto & Forex similarities
A key similarity between forex and crypto is that they both have value relative to each other. While the general public might have doubts about Bitcoin or Ethereum as legitimate currencies or forms of monetary exchange, forex exchanges recognize cryptocurrencies. In addition to reputable financial organizations such as the Chicago Mercantile Exchange (CME) who offers Bitcoin futures, you can also trade contracts-for-differences (CFDs) of well-established cryptocurrencies and partake in safe investments on indices markets on reputable platforms like City Index and a host of other broker platforms.
Decentralisation & similar market physics
If you’ve heard anything about cryptocurrencies, odds are the first thing that comes to your attention is the concept of ‘decentralization.’ What this simply means is that there’s no form of central regulation. All decentralization means is that you should tread carefully if you’re going to invest in cryptos, but then that goes for almost any kind of investment. The market physics of both forex and cryptos is quite similar in terms of regulation. The notion of supply and demand applies to both markets. For instance, if there are more interested buyers than there are sellers for a specific cryptocurrency, the price of the coin is sure to increase. In other words, you’re facing a crypto bear market, just a one would encounter in forex trading. Both markets are susceptible to external influences. For instance, if someone converts a boatload of Bitcoin into Japanese yen, then the crypto market would be impacted just as warmongering in the US would impact the value of certain US-based currency pairs.
One of the biggest drawcards of cryptocurrency is its anonymity. Deregulation and no government influence were very prominent when these coins started to gain prominence just over 10 years ago. In more recent times though governments and central banks have been looking into ways in which to regulate, control and tax those who make use of cryptocurrencies. Blockchain technology, the digital process behind crypto exchanges has also gained major recognition in terms of its multiple applications, and so much so, that many industry insiders see it as the next step in the evolution of the internet. Alternatively, forex trading and transactions are regulated by the online brokers who facilitate the services as well as a global network known as the interbank market. As far back as 2014, the interbank market has implemented KYC (know your customer) practices that ensure that traders confirm their personal information in order to access the various financial instruments that allow them to trade in shares, stock, commodities, and currency pairs.
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